Many borrowers struggle to repay their loans when the economy goes downhill. But so far, the region’s community banks have weathered the summer storm. This is another sign that Memphis’ economy has split into a sort of two-city story.
Problem loans are not considered excessive for Greater Memphis banks, even though the coronavirus storm has caused unemployment to skyrocket.
Many borrowers struggle to repay their loans when the economy goes downhill. But so far, community banks in the region have weathered the summer slowdown without racking up large volumes of delinquent loans.
This is another sign that Memphis’s economy has split into a sort of two-city story.
Logistics, professional services and healthcare companies drive Memphis’ economy by $ 77 billion, as bars, restaurants, hotels and many stores struggle after tourism and daily travel moved back.
Banks see both sides. As of June 30, problematic loans from community banks in the region stood at $ 72.1 million, up 5.4% from the $ 68.4 million in problem loans recorded a year earlier. reports the Federal Reserve Bank of St. Louis.
The 5% increase in problem loans over the course of a year is notable, but as a measure of distress, 5% is nothing compared to the bank’s weakness after the 2008 financial crash. in late 2007 and late 2008, the volume of problem loans at community banks jumped 48% to $ 69 million, according to the same St. Louis Fed report.
“What we are going through is nothing like what we saw in 2008,” said Bill Harter, senior vice president of FirstBank in East Memphis. “2008. Boom. Everything stopped. This time it’s different. There is always a demand (for loans) there.
Jobs abolished, loans
If banks stay healthy, the loans can help businesses in the region pull the economy out of recession next year, when researchers expect a cure for the virus to be available.
Encouraging people to travel and work from their desks rather than from their homes should lead employers to recall thousands of inactive workers. Currently, a record 82,000 residents are unemployed in metropolitan Memphis, pushing the unemployment rate to 13%, the the highest level here for over 80 years.
Despite the layoffs, many businesses remain open. Loan demand has not weakened. Loans from community banks in the region totaled $ 6.6 billion in the quarter ended June 30, compared to $ 6.2 billion in the same period last year. This equates to a 6.5% gain in lending volume during a period when the region’s unemployment rate soared – 10.7% in May, 11.9% in June, 13% in July. The St. Louis Fed’s loan numbers are for community banks with assets of less than $ 5 billion, a level that excludes large banks such as Memphis-based First Horizon.
Unemployment has risen and the economy has slowed after mayors and governors ordered non-essential businesses to shut down in the spring in a bid to slow the spread of the virus among people working nearby.
Once the orders were lifted, area employers filled about 10,000 jobs in a matter of weeks, according to labor market reports, bringing the total number of salaried jobs to about 610,500 in the metro area. These new jobs appeared mainly in June. They seem to have been factored into the lending surge. Businesses borrowed to speed things up.
Despite the midsummer rise, Memphis lenders in September appear cautious. They point out that it is not clear whether the trend will continue in the fall:
- On the one hand, the sudden closure devastated the city’s large tourism-related businesses, such as hotels and nightclubs. Many are still in shock.
“After going through a challenge like this, a challenge we’ve never seen before with the coronavirus, there are people who aren’t nearly where they were in 2019,” said Harold Byrd, president of the Bank of Bartlett, comparing sales volumes in companies this year to last year.
- On the other hand, consumer spending held steady during the summer and even fueled a increased gun sales in the Memphis area. Bankers are crediting federal aid, including $ 1,200 stimulus checks for households and paycheck protection program loans for some businesses. “Much of the loan growth that occurred in the second quarter could be tied to PPP lending,” said Robert Shaw Jr., managing director of Paragon Bank in East Memphis.
- But this stimulus is over. The US Congress has yet to decide what to do.
“We have a lot of challenges to overcome this,” said Jeff Hudson, president of FirstBank for the Memphis market. “The government responded with aid programs. They relax. I don’t know how well we’re going to do or when we’re going to know how well we’re going to do. Time will tell us.”
Banks are growing despite the economic climate
With the end of the stimulus and hundreds of companies barely hanging on, bankers say they are ready for a deeper downturn.
So far, however, the deeper plunge has not started. Indeed, some banks have developed, taking the position of being ready for economic recovery when a cure for viruses is underway. For example:
- First Horizon absorbed Louisiana-based Iberiabank to rank 36th among US banks.
- Curt Gabardi, a former senior executive at the former Union Planters National Bank, is take control at small First Commercial and branching out into the main office district of East Memphis. The bank is based in Jackson, Mississippi.
- FirstBank has hired former Iberia specialists in commercial and industrial loans. Nashville-based FirstBank, organized by West Tennessee healthcare entrepreneur Jim Ayres, has been one of the state’s fastest growing banks. He financed the construction of Memphis the TraVure project from developer Ray Gill in Germantown, the last large office building to be built in the area. The bank’s main branch in Memphis is located at TraVure.
Sectors are doing well
With loan volumes on the rise and problem loans still not a threat, Memphis banks are focusing on areas of the economy that are still doing well.
“Right now, given the nature of where we are in the suburbs and what we’re involved in with house building and mortgages, and those are in full swing, we don’t mind. let’s come out great, ”Byrd said.
This year through August, 634 newly built homes sold on average for about $ 355,100, compared to 602 new homes sold last year during the same period, reported the Memphis Area Association of Realtors.
Among existing homes, 11,685 changed hands this year through August, a decrease of 5.9% from the same period last year. August sales fell 5.1%. The Memphis real estate group attributes the drop to an insufficient number of homes for sale as the Memphians stay put during the crisis.
At the same time, demand for housing has jumped, causing transaction prices to rise 9% in one year. The typical existing home is now changing hands for over $ 197,000 in the Fayette, Shelby and Tipton County markets monitored by the Memphis Real Estate Group.
Ted Evanoff, Business Columnist for The Commercial Appeal, can be reached at [email protected] and (901) 529-2292.